Chapter 6 - Inventory Flashcards
How is gross profit calculated?
Sales revenue - cost of sales (op inv + purchases -clo inv)
Inventory held at year end is classified as what?
A current asset in the SFP
What is the double entry for adjusting for opening inventory?
Dr Opening inv in cost of sales (SPL)
Cr Inventory (SOFP)
What is the adjustment made for closing inventory?
Dr Inventory (SOFP)
Cr Closing inventory in cost of sales (SPL)
IAS2 says inventory is what?
Inventory shall be measured at the lower of cost and net realisable value
What is net realisable value?
Revenue expected to be earned in the future when the goods are sold less any further costs to sell
What does the cost include?
Cost of purchase, material costs, import duties, freight inwards and cost of conversion
What costs should be excluded from cost of inventories?
Selling costs, storage costs, costs of abnormal wastage and admin overheads
How do we calculate valuation?
Valuation = quantity x price
What is unit cost?
This is the specific cost of purchasing units of inventory
What is fifo?
The first items of inventory received are assumed to be the first ones sold
What is AVCO - periodic weighted average?
The cost of an item of inventory is calculated taking the average of all inventory held.
Calculated at the end of the accounting period when the total purchase cost and units purchased is known
What is avco - continuous weighted average?
The cost of an item of inventory is calculated taking the average of all inventory held.
The cost of any subsequent sales is then accounted for at the updated at that weighted average cost per unit
What happens if inventory is overvalued?
Assets are overstated in the SFP
Profit is overstated in the SPL
What happens if inventory is undervalued?
Assets are understated in the SFP
Profit is understated in the SPL
